Sweden's export dependence – vulnerability for fluctuations in international demand
Sweden is a small open economy with a high trade dependence. The export dependence is highest in the manufacturing industry, where more than 60 per cent of the value added is exported. But also primary industries and parts of the service sector are largely dependent on exports, both directly and indirectly as suppliers of raw materials and services to the export industry.
Exports are very important for Sweden's economy. But it also makes the economy vulnerable to fluctuations in international demand. When things go well for the world, things go well for Sweden; and the other way round. A case in point is the financial crisis of 2008–09, which caused a fall in the Swedish export with some 25-30 percent with increasing unemployment and falling GDP as a result.
The purpose of this report is to analyse Sweden's export dependency and vulnerability to fluctuations in international demand. The analysis is based on a global input-output model built around the OECD's Trade in Value Added (TiVA) database. The report starts with a survey of the business sector's direct and indirect export dependence. The report then develops two models for analysing, first, the vulnerability to specific demand shocks and, secondly, the risks associated with specific export markets. The first model is implemented in an Excel file that the user can download from the homepage to construct their own scenarios. The risk assessment of individual export markets is based on the demand covariance between different markets. The risk measure is adapted from the CAPM model in financial economics.
We hope that these analytical tools will be helpful for relevant ministries and industries in their assessments of the risks of international trade.